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Euro South African Rand (EUR/ZAR) Exchange Rate Edges Higher Despite Poor Eurozone Business Confidence

EUR/ZAR Exchange Rate Rises as Chinese Manufacturing PMI Boosts Trade Hopes

The Euro to South African Rand (EUR/ZAR) exchange rate edged higher today despite the Eurozone’s business confidence suffered a drop -0.6 to -0.28, while the bloc’s economic sentiment indicator fell to a record low of 94.5. The pairing is currently trading around R19.810.

Bert Colijn, ING’s Senior Economist for the Eurozone, commented:

‘After four months of increases, economic sentiment nosedived in March, proving it is not immune to the fallout from the coronavirus. This decline may be historically large, but the survey was conducted between 26 February and 23 March and fieldwork was hindered by containment measures. That means that the decline understates the actual fall in sentiment for March.’

Meanwhile, the Euro (EUR) benefited from China’s positive manufacturing PMI, which sparked hopes that global trade could begin to stabilize and help boost Germany’s trade-reliant economy.

The coronavirus pandemic, however, continues to weigh on Germany’s economy – the largest in the Eurozone – after The German Council of Economic Experts predicted that the economy could shrink by as much as -5.4% if EU restrictions aren’t lifted by the mid-May.

The German government’s economic advisers stated:

‘The coronavirus outbreak has stopped the incipient recovery… The German economy will shrink significantly in 2020.’

South African Rand (ZAR) Exchange Rate Sinks as Currency’s ‘Junk’ Status Weakens Appeal

The South African Rand (ZAR) has continued to suffer after the ratings agency, Moody’s, downgraded the currency to ‘junk’ status.

Analysts at Reuters commented:

‘South Africa’s assets have been hammered in the past two weeks as the spread of the coronavirus and an oil price rout sparked a broad market selloff that engulfed many riskier assets.’

Today’s positive Chinese manufacturing PMI has provided some uplift for the risk-sensitive South African Rand. However, despite China being South Africa’s largest trading partner, this failed to boost the mood for the domestic economy which continues to teeter on the brink of collapse.

International Monetary Fund (IMF) Africa Director Abebe Selassie and Karen Ongley, the head of the IMF’s Sierra Leone office, commented:

‘Across the region, growth will be hit hard. Precisely how hard is still difficult to say. But it is clear that our growth forecast in April’s regional outlook will be significantly lower.’

EUR/ZAR Outlook: South African Rand to Suffer From Risk-Off Market Mood

South African Rand (ZAR) investors will be awaiting tomorrow’s release of March’s South African business confidence index. The ZAR/EUR exchange rate will likely fall as the nation’s business morale will be severely compromised by this month’s coronavirus outbreak.

Tomorrow will see the release of Germany’s final Markit Manufacturing PMI for March. If the gauge sinks any deeper into contraction territory, we could see the Euro begin to slip against the South African Rand.

The EUR/ZAR exchange rate could hold onto its gains this week as the risk-sensitive South African will face increasing volatility as the global economic outlook darkens.